Q: Can you think of any society throughout history where the rich people have
not been able to use money to buy favors from the king or the powerful class?
Any time, any place?

Phillips: Oh, I think that's pretty much the case down through history.
As you say, there are minor interruptions. For example, in the British welfare
state after World War II, when the Princess Elizabeth got married, she got a
special dispensation of ration coupons so that they could serve better food. So
I think at that point, it didn't buy what it usually bought. But even then there
was a favor.

Q: So then, are we talking about a rhythm of privilege that is just somehow
organically natural? Rich people spend money and get what they want,
period.

Phillips: Well, I think you have to think of it as a kind of trajectory.
You have periods where the rich are really in trouble politically. I think you
could fairly say that in 1793, in the terror in France, they were in trouble.
Then you have periods in which it's kind of a normal balance, which is to say,
yes, money buys favors. But doesn't buy so much that it perverts the culture or
the political system. Then you rise to certain points where it does. And these
are usually in the periods of excess, whether it's the Gilded Age or periods of
corruptions, and speculative bubbles. And this usually will give way again,
because it's an excess, and it's corrected. It's very rare that money doesn't
buy most of what you want. But it's also not that commonplace in history, that
it totally warps the system.

Q: What was the high point in the last 100 years of American history?

Phillips: Oh, I think there are three high points. The Gilded Age, right
at the end of the 19th century, the Roaring Twenties, and then the last 15 years.
And the last 15 years, according to a number of surveys, have seen the United
States income inequality exceed that of France, which was the bellwether in
Europe. We're not up to Brazilian standards yet, but clearly that would be the
next target.

Q: But that's not the same thing, to say that richer people have more of the
national wealth at a given time does not mean that they get more political favors
at the same time, or does it?

Phillips: Well, it doesn't as a matter of course. But I think as a
matter of operational reality, it probably has a fair correlation. In these
Latin American societies, the favoritism to the top 1% is notorious. For example
in Mexico, it basically buys immunity from justice. It corrupts the police. The
whole role of Mexican presidents not being prosecuted for anything they did when
they were in office, there's a whole family network. The same would be true
almost as much in Brazil. In the United States, that's not true. But on the
other hand, we don't have a Mexican or Brazilian pattern yet.

Q: The pattern that I'm accustomed to is set sort of by this guy Plunkitt,
of Tammany Hall, in this little book. 'I seen my opportunities, and I took
'em,' he says. And it describes a lower middle class, largely Irish immigrant
population, in Boston, in New York, and what they do is they load up the
political system with favors for their friends and their families and their
nephews and their nieces, and that's the law there. I don't see Andrew Carnegie
walking in, in the 1890's saying, 'I want this, I want that, give it to me'. I
see Boss Plunkitt doing that. So my sense of America is that the corruption and
money and politics wash the lower middle, the middle class's hands for a long
time, not the top.

Phillips: Well, more or less during that same period, which is the period
after the Civil War, was when you did have the Gilded Age. It was when all the
great mansions on Fifth Avenue were built, all the yachts off Newport. And J.P.
Morgan and Vanderbilt and people like that could with a flick of the finger
transfer more money and power and wealth than George Washington Plunket and 50
Irish saloon keepers in a year.

Q: Sure. But there were a lot more Plunkitts than there were Morgans.

Phillips: No, that's not true. There was Boss Tweed. There were a few
others like that. But New York City was the only big operational grab bag of
machines. Boston was relative chicken feed, comparatively. It was the city
here, with its huge expansion, its ties into Wall Street, real estate. The
opportunities for the hacks to make money here were much greater than they were
elsewhere.

Q: If you say that the period of the last fifteen years represents one
of the great grabs of American history, what is your measure? What's your
evidence for that?

Phillips: Well, let's look at it simply from the standpoint of where the
financial markets were during this period. The records set that way, and also
the records set in using public money to bail out finance whenever it got in
trouble. And we can start with the extraordinary bull market that commenced in
1982 and had a very minor interruption in 1987, because essentially the Fed
flooded the system with liquidity, and then the market was not lost. So you have
the Dow going from something like 600 or 700 in 1982, up to virtually 7 or 8
times that now. And you've had enormous profits. But they haven't been profits
achieved in the free market. They've been profits achieved in a financial
mercantilism system, whereby big banks get bailed out. We can go back with
Continental Illinois and the Texas banks in the mid-80's. Then you get
Greenspan's bail out of the stock market in 1987, with the sort of liquidity
never made available in 1929. Then you get the bail out of junk bonds...

Q: But to characterize the bail out of those banks, of those savings and
loans as a cozy arrangement between the privileged white collar guys and their
political friends...couldn't you say, 'Look, do you want to have a complete
collapse of the financial system of the United States or no?' So we've got to do
this, no matter who's there. We've got to do it. Those are both equal
interpretations of the same event.

Phillips: Well, I don't think so. First of all, it hadn't been done.
Before, the system had been forced to purge itself and grow back again in the
1890's and the 1920's.

Q: But that was horrible. That was a real bank collapse.

Phillips: But it was, the Schumpeterian capitalist process, which was a
renewing one, as opposed to a stultifying one, which is what we've had
here.

Q: Renewing, but very painful for people.

Phillips: Well, very painful, but that's the way capitalism is supposed
to work. And that's why I say we've shifted away from capitalism to a financial
mercantilism. A lot of European and Asian hot money that was in these
institutions was paid fully, way above the limit. Why? Because of the theory
that you couldn't lose these investors. You couldn't lose all these people
moving money around. They weren't little guys. They weren't Americans. They
were big financial movers. And when we got to the peso bail out, something else
that hadn't been done before. If Americans took a bath in a foreign currency in
previous situations, they were not bailed out. This time they were. Just part
of the same process. Finance can't fail. People with corner hardware stores can
fail. That is part of the mercantilism that's kept this whole thing
going.

Q: Is that a description of political corruption? Or is that a
description of a new world in which capital flows much more easily about the
world?

Phillips: Oh, I think it's a description of both. You can fairly say
that capital flows more easily, although in the days of the Dutch financiers of
the early 18th century, Braudel and others have written about how that flowed
almost as easily. And it certainly did in other times, too. But the mass is
enormous. But what has made it so effective is that the whole structure of
influence in Washington has moved more and more away from things like aluminum
companies and labor unions, to people in financial services. And the money that
pours in is enormous. And it's terrific to be able to have a fund raiser from
Merrill Lynch or Goldman Sachs or Bear Stearns that turns in $400,000 when you've
got a rough political situation. Nobody wants to cross them. We now have a
Secretary of the Treasury who's the former co-chairman of Goldman Sachs. He was
an arbitrator during the 1980's. This element in Wall Street and finance have
more political power at this point in the United States than they had in the 20's
or in the 1890's.

Q: Really?

Phillips: Absolutely.

Q: You think the guys who ran railroads and who sent ships all over the
world in the 1890's, or the guys who were building automobile companies and giant
manufacturing operations in the 1920's had less political influence than today's
financiers?

Phillips: I said these guys, which is to say the financiers. The people
who had influence during the periods of the industrial revolution were
essentially the people who owned the big plants and railroads and industries.
What's happened now is that the power shifted to finance, and the people in the
real economy have less, because the powerful economy is the financial
economy.

Q: That's a shift in cast. Is that a shift in magnitude? Are you more
suspicious of the relationship between today's financiers and today's politicians
than you were in retrospect, or that one would be in retrospect of the
arrangements of the 1920's or the 1890's?

Phillips: Absolutely. I think you could fairly say that we'd be more
suspicious of the relations between steel company owners and railroad owners,
back 50 or 100 years ago. But you should be more suspicious of financiers
today.

Q: Why?

Phillips: Well, because the change in finance from electronic finance is
staggering. The extent to which you have these computers playing search and
destroy in the world economy, figuring out what to short here, what to hedge
there, is just absolutely unprecedented.

Q: But they don't need a president or a senator to make that. They're
sitting there at those computers that are thinking, buy francs, buy pounds, sell
this, sell that. And they never lift a phone and say, 'Senator, can I have your
help?' It's too fast. It seems to me that politics is too slow for what they
do.

Phillips: Well, they don't have to lift it on the contract, obviously.
What they lift the phone for is to say, 'You guys don't want to regulate this, do
you? We don't want to have a futures commission. We don't want to do anything to
Bankers Trust. Remember that great dinner we had, Charlie, and all the
fellowship?' You know, we really don't want anything to interfere with us. And
nothing has.

Q: How many of these people, these financial people, are there? In
Washington, are they represented by a dozen people? Or 1000 or what?

Phillips: Oh, they're represented by the best minds money can buy.
Essentially what you've got here is an extraordinary buildup of power. There are
magazines that publish the most successful 50 people or something in the
financial community. It used to be that somebody making $6 million a year would
be at the top. And then you'd go down to somebody making 1.1, and this is 20
years ago. Now it starts with people making $450 million in that year, because
their hedge fund was making a lot of money, and the poor people at the bottom of
the list was somebody that cleared like $31 million. So you're looking at
staggering sums of money. And the ability to hire every law firm, every public
relations firm...Every political consultant in Washington has got a client that
is somewhere in this stew pot.

Q: And there's more leverage there than was available to the Carnegies
and the Mellons and the Belmonts and Mrs. Astor's crowd 100 years ago.

Phillips: Well, in that period, government didn't do very much, so it
wasn't necessary to stop the government from regulating it. It was necessary to
have the government give you a sweetheart deal on railroads, or some kind of
arrangement for a steamship subsidy, or a tariff on steel. But it wasn't
necessary to have the government do all these little things that would change
things, because it did not have a large role at that point. Now, the influence
of people in the industries of that era, railroads or steel, was enormous. And
of course, a whole movement grew up in American politics, the populist and
progressive movement, to do something about it. And they did it. And what I'm
saying here is that we have at least comparable power. And it's high time that
it was recognized, and that politics wrapped around, bringing these people to
heel.

Q: Let's talk about that. They used to be called `Goo Goos' I think, good
government types. Can reformers say, 'Let's change the rules. I see money. So
I'm going to build some kind of fence, and I'll channel it, stop it, prevent it
from corrupting the system.' Does that ever work?

Phillips: Well, I don't think it does too often, when you take it as a
'reformer' type approach and issue. I'm not somebody who believes that people
who are reformers, who sit around hair splitting and working up schemes to make
things abstractly better usually get very far. But what we've got is something
that's happened before. You've got a financial political structure that's sort
of out of control. People are extremely angry. They see that they've lost
control of this part of the country. And you can take somebody like Ross Perot.
His great strength is, he's not a reformer. Nobody thinks of Ross Perot as a
reformer. He's a mad little guy with $3 billion, and he's going to come in like
a national Roto Rooter man. And that's not reform. That's good old American
populism. Even from a guy with $3 billion. His words were, 'I can afford to buy
the country back for you. So I'm going to do it.'

Q: Sometimes you get the feeling that money is like water. It just
inevitably gets to where it's going to go. Has there been a time, or a guy, or a
law that has actually channeled and solved the problem for a while?

Phillips: Well, I think the answer to that is yes. Sometimes when
there's a drought, water can't get where it usually went. And if you know how to
divert rivers, you can obviously change the fertility of land. So there are ways
to do this. Politically, Franklin D. Roosevelt figured how to divert a few
rivers, and the people who had been calling the shots in the 1920's weren't
calling them worth beans in 1934 and `35. So yes, you can do it.

Q: So you are confident that by some means or other, you can affect the
day to day arrangement between people of wealth and politicians. It can be
changed.

Phillips: Yes, it can be changed. But it's obviously a very tricky thing
to do, because we're at a stage now where every possible effort is going to be
made to keep the status quo, to do nothing that would interfere with profits or
the stock market or all the arrangements of finance in which they have these
trillions of paper dollars, electronic dollars spinning around the world. And
unfortunately, you have to do something about it at a certain point. And the
people will point out the perils of that. And I expect that to be a huge
debate.

Q: So when you see two senior politicians, like the President of the
United States and the Speaker of the House in New Hampshire, shaking hands and
saying, 'Let's fix it, OK.' When you watch that moment, what do you
think?

Phillips: Well, frankly what I thought we saw was a used car salesman
meeting an ambulance chaser and saying, 'We're going to change everything that
we've made so much money out of. And you're suitably empowered to laugh.'

Q: So, if not them, who?

Phillips: Well, somebody elected in their place, which I realize is
something you can't think of right at the moment, but one of the great remedies
in American history has been politics that gets rid of these people who have been
part of a system that doesn't do anything. And then I think the great hope of
the system is that at some point those hands will reach out, and they will take
people like Bill Clinton and Newt Gingrich and send them back to where they came
from.

Q: If you were Al Smith, and you were running for President in 1928, how
did you go about raising money, and how much time did it take?

Phillips: Well, one of the things the Democrats faced at that point, one
of the reasons they weren't as credible in terms of doing anything about the
1920's is Al Smith's campaign was largely funded by big money. His finance
chairman was a fellow connected with the duPonts and General Motors. And Al Smith in the 1930's wound up opposing Franklin D. Roosevelt's economic policy
because it was socialist. So the notion that the Democrats were any different in
1928 than the Republicans is exactly part of the problem as to why the whole
system went off the track. They were not.

Q: So, widening the circle, if it were Coolidge, or any of the 20's guys,
Coolidge, Hoover, Smith, did they sit at the phone Monday mornings and then call
rich people and get checks for two hours every day, Monday through Friday?

Phillips: Well, they didn't need to. The Republican and Democratic
National Committees were almost unregulated by law at that point, and they could
go around and hustle money, and they did it left and right.

Q: You mean that they'd just go to their friends, the man at the bank,
the man at the railroad, the man at the steel company, and say, 'I want
$10,000?'

Phillips: Well, the party committees didn't amount to too much. So they
didn't need enormous funding during a non-election period. You didn't have a
staff of 400 or 500 people. What would happen is that in a serious presidential
campaign, they would sort of get together, and they'd figure out how much money
was necessary, and then it would be raised out of the cabal. Now, the cabal in
the Republican Party was almost entirely Northern, and it's possible to name the
industries. With the Democratic Party, you'd be looking more at Southern and
Western states. I'm sure cotton, oil. Lyndon Johnson got a lot of money from
oil. But he got on the phone from time to time.

Q: So what you'd do is you'd look at the industries and the regions that
were on your side, and you'd call up Mr. Rich, Mr. Second Rich, Mr. Third Rich,
Mr. Fourth Rich, Mr. Fifth Rich, Mr. Sixth Rich, Mr. Seventh Rich and get your 50
grand or whatever you'd need?

Phillips: No, you'd probably call up Mr. Fourteenth Rich, who was the bag
man and called the others for you. I mean, if you were talking about the steel
industry or coal or railroad.

Q: Is there any limit, by the way? Could I give $100 or $1000 or $1
million? Does it matter?

Phillips: Unless there was a state law, it wasn't regulated federally.
But I'm sure there were state laws in some cases. But I can't really answer that
with any more detail.

Q: So, in general, at least as far as the federal government was
concerned, it was, you know, whatever you got, you got. And whatever you want to
give, you give, with some state amendments here and there.

Phillips: Well, basically, the federal government wasn't regulating in
that area. The regulation of elections is pretty much a matter for the states,
unless there's an override in Washington legislation. And at that point,
Washington wasn't overriding. So that I don't think that there would be federal
inhibitions. But I'm not an election lawyer, so I can't give you a categorical
legal statement on this.

Q: Jack Kennedy and Hubert Humphrey and Kefauver and Stevenson, in their
era, were they doing pretty much the same thing?

Phillips: No. In Kennedy's case, he just called his father, and his
father sent in a bag of money.

Q: Well, we still have a few of those. But otherwise, if it's Hubert
Humphrey, what did he do?

Phillips: He cried about Kennedy's father sending him all the money,
which his father didn't have.

Q: How about Dick Nixon?

Phillips: Well, Nixon cried about not having money. And then he figured
out ways to get it. Nixon did fund raise. And when we look back on the amounts
of money involved in this little fund that he had that was such a big focal point
in 1952, it was like $15-- or $16,000 put together, I think generally, to pay the
expenses of flying back and forth to California. And something like that is such
total chicken feed today, and frankly would have been in the 1890's too, that you
have to wonder about it. But one thing I have to say for the New Deal is it
created a new context of making money suspect. And Roosevelt and Truman ran
against the rich often enough that it was no longer seen as something you just
laughed about, that you had this money. Daniel Webster, in the middle of the
19th century complained that the bank that hired him to represent them, while he
was a senator, was late in sending his check. In the British Parliament, members
of the House of Commons are free to lobby, even now. So we're looking at
cultures that can be very permissive on this.

Q: Daniel Webster was a sitting senator?

Phillips: Yes.

Q: And he gets checks from a bank? For what? For lobbying?

Phillips: Well, he didn't have to lobby, because it's people
who lobby senators and congressmen who are lobbyists. If a senator is bought
directly, I assume there's a better word. But since there was no statute, there
was no better word.

Q: So he stands up in a public place and says, 'Hey, I'm bought, but they
haven't paid me?'

Phillips: No, I'm sure it was a private comment that his check was late.
I don't think he stood up in the Senate and announced, 'I am not going to do
something for the Bank of New Hampshire because they're in arrears.'

Q: What changes these moods? You said the New Deal makes big money
suspect. Has the mood changed back again?

Phillips: The New Deal made big money suspect because big money made
itself suspect. Generally speaking, what happens in these go-go eras is that
they go too far. They build up speculative bubbles. They invest in all kinds of
flim flam, and somehow it starts coming to crash. And of course, in 1929, it
did. The stock market lost 80% of its value between 1929 and 1932. So they were
suspect in the eyes of the people when Franklin Roosevelt was inaugurated. And
he pursued that, because he basically had the sense that all kinds of
arrangements that had made this possible back in the 1920's had to be permanently
changed. And it created a psychology that wealth was something to apologize for
in some respects, because it had been so abused. And that lasted through the
50's, I think, and then it was lost in the 1960's when everybody had forgotten
the Depression enough so that there were all [these] bubbles in Wall Street, and the
conglomerate movement and go-go stocks and game playing and tax breaks. So then
we started the long cycle back.